In this episode of Startups For The Rest Of Us, Rob and Mike talk about customer acquisition strategies. Based on a themarketingstudent.com article, they break down the difference between strategies versus tactics and how to think about your acquisition strategy.
Items mentioned in this article:
Mike: In this episode of Startups For The Rest Of Us, Rob and I will be talking about customer acquisition strategies. This is Startups For The Rest Of Us episode 397.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, watching, and growing software products. Whether you built your first product or you’re just thinking about it, I’m Mike.
Rob: And I’m Rob.
Mike: We’re here to share experiences to help you with the same mistakes we’ve made. So, trivia question for you, Rob. How many times do we say Startups For The Rest Of Us in the intro?
Rob: That was a guess.
Mike: I remember so many commenting on that just because we’re like, “Oh, you say that a lot,” and I was like, “Three times, pretty close together but we just wish we did it three times.”
Rob: We should figure out how to shrink that. Should we also record an episode that is just a list of lists?
Mike: Sure. I think that sounds like great idea.
Rob: We got an iTunes comment. It was a four or five-star review but it’s, “Stop making lists. All your episodes are listicals or something like BuzzFeed.” So I went back and looked in the prior 20 episodes. We had three that said “X ways to do this,” or, “20 podcast we like,” or, “X approaches to this.” It’s 3 out of 20. I don’t know. That didn’t feel like everyone.
I also feel doing that list approach. I don’t do it for the BuzzFeed aspect, but I do it because I feel it helps listeners know what the episodes are going to cover. It’s a really concrete outline that people can get their head around and they know for it number three or number four, they just know how long it’s going to go.
For me, I have been using Zoom for a while. We were using it at Drip to do demos and such, and I really enjoyed it. It works well on low bandwidth. It is just a frictionless experience for people you’re trying to get on a call. I cannot stand Skype anymore. The user interface, that you have to link up with people, accept this invitation, and the fact that I can just drop a Zoom link somewhere and people just show up, and you’re there video conferencing is amazing.
I think I’m still on the free plan. With Drip we had to have a paid plan but now that I’m just doing stuff on my own, you can get quite a bit and really not have to pay for it. The other thing that I have signed up for, which I really have never done the whole Calendly send the link and then book the stuff. But I’m booking just enough things here and there and they’re all ad hoc that I decided to try it.
I actually send up for YouCanBook.me which is a bootstrap Calendly competitor. Bridget, the co-founder spoke on MicroConf a couple of years ago and then Anna, who was employee number three or four at Drip runs Customer Success for YouCanBook.me. I want to give it a try and see what the experience was like. I’ve been really pleased with it.
Again, I think I’m on their free tier as well. But it’s this combination of things that it is just saving me a lot of time and a lot of headache. I’m sure there’s pros and cons of YouCanBook.me versus Calendly versus the other 10 apps that do it but I’ve got a really good experience because it does everything I need. I has a lot of options in that app. I was impressed with it because I know it’s been around for a couple of years. But they built a ton of features into it so I just want to give them a shout out as a new user.
Mike: I think it is justified that you’re on the free plan given that you’re unemployed.
Rob: That’s right. It’s an income thing not a lack-of-features-that-I-need thing. You’re not going to let that go, are you?
Mike: No, not until you start to do startup. This could go on for as long as you want it to be.
Rob: The only way to make it stop, Rob, is to start another company.
Mike: I will shame you until you do that. No. just kidding. Other thing. I’ll make a pre-announcement for this because I don’t have a contract in place and I don’t have a confirmation on this. You can probably put it tentatively on your calendar. Hopefully we won’t have to make a correction to this. But MicroConf, you’re tentatively scheduled for October 21st to October 23rd in Croatia. Write that down, I’m hoping that next week I will not have to do a retraction. If you’re not in the mailing list for that, you can head over to microconfeurope.com and get on the mailing list for that. Just sign up and we will let you know when we have all the details worked out for everything and when tickets are on sale.
Rob: I’m stoked about this. Hope that comes together. We wanted to go to Croatia for the past several years. We almost hoped over there when we were having MicroConf in Barcelona. We never made it, so very excited.
Another thing for me and kind of a thanks and a high five from a guy named John Elliot with equipmentwallet.com and he says, “In 2012, I started a web product that I soon abandoned. As a single non-technical co-founder, I simply lack many skill sets at the time to get anywhere. However, I never stopped believing in the concept of what I set out to do. In August of 2017, I relaunched equipmentwallet.com, it’s a marketplace that matches businesses seeking equipment financing with lenders who bid for their business. Your podcast to me has been educational, tactical, and most of all motivational. It’s been part of my journey and helped me revisit my project and get it out there. Thanks to you both.”
Mike: That’s awesome. Thanks, John. We really appreciate letting us know about that.
Rob: Yup. It’s always good to hear success stories, people getting to launch, and revenue milestones and all that stuff. He also has PS, he says, “Are there any previous episode you can point me to regarding selecting or selling through affiliates, pros and cons, using a service like Commission Junction or not?”
Honestly, I would go to startupsfortherestofus.com and in that search box, type in ‘affiliates’ or ‘affiliate marketing’ and see what comes up. I am guessing in 400 episodes we’ve talked about this. I don’t know if we spent an entire episode on it, but even if you download a handful of Q&A episodes and listen through them at 2X, I think we have laid out a lot of our thoughts on this topic at some point or another.
Mike: That’s a little known hack on our website because we have all the transcripts available, everything’s searchable so you can go through and if you have a specific topic that you’re looking for, you can just go in, type in a couple of keywords, search, and see what episodes come up. Quite frequently there’s something there when you’re searching for something like affiliates or specific companies you usually find find it there. It’s nice to have that.
I remember you and I went back and forth of this number of years ago as to whether or not we were to continue doing transcripts and I always find them to be helpful to be able to go back and find them. I did see recently that Google is starting to take videos and MP3s that they find on the internet and if they have the links to them, then they also transcribed them.
Rob: Yeah. I would imagine that because they want index everything, right?
Mike: Right. They’ll do the speech-to-text translation and then make it so you can find those things and incorporate them into their search engine.
Rob: Yup. That is a little known hack that I use often. When people ask, “Have you ever spoken about this?” often times I can’t remember. I go to the site and I search it. So it is neat to have transcripts of hundreds of hours of us chatting
Rob: So what are we talking about today?
Mike: Today, we are going to be talking about how to pick a customer acquisition strategy. This is based very largely on an article that we’re going to link to over on themarketingstudent.com. It talks a little bit about customer acquisition strategies and difference in tactics, strategies, and how to think about them. What we’re going to do is basically run down the article itself, go through this, and use that article as an outline—come in give or take—on certain pieces of it.
Rob: Cool. Let’s dive in.
Mike: The first part is essentially differentiated between tactics and strategies because the article itself is on customer acquisition strategies. So it starts off by differentiating between those two. It says, “Tactics are the ones that you see all over the place. How do you use LinkedIn to contact people and scale up your outreach efforts or how do you reduce your onboarding by 17% and this is how such and such company did it.
But the reality is that, those are all tactics versus strategies are things that people don’t talk a lot about and they tend to be overlooked because it’s the tactics that people are going to be able to put into place that are actionable, versus the strategies which give you really a foundation for how you’re going to be approaching those things versus the tactics are stacked on top of it. That’s really how they phrase this. The strategy is the foundation and tactics are the things that you stack on top of strategy in order to make it work. If you don’t have a strategy for something then you are going to be drowning in a tactic because you’re going to be trying all these different things and they don’t necessarily all fit together well because they are not part of a cohesive strategy.
Rob: Yeah and that’s one comment I was going to make. Notice that the title of this article is ‘How to pick a customer acquisition strategy that will get you to $100 million,’ and I’m assuming ARR. I was going to say if that said ‘How to pick a customer acquisition tactic,’ that will get you there, that would be a misleading headline because I don’t believe there is—except in extremely rare cases—a single tactic that’s going to get you there. Whereas, if you have an overarching strategy for a bunch of tactics under there, then that makes more sense. I would like to think of strategy much like you said, it’s this umbrella under which a bunch of tactics fall.
Mike: The next piece that they lead into is how to think about your acquisition strategy and how do you come up with them. One way—it’s kind of obvious—is to look at existing companies that are the level that you want to get. So they use $100 million companies as the basis. If you want to get your own company to a $100 million, you look for other $100 million companies that have a similar business model to yours.
With that said, we’re going to dive into three different pieces of it that they talked about. The first one is identifying what’s your business model is. This is all about figuring out what your customer lifetime value is, how much you’re going to get from a given customer or account, or how you’re going to be selling your software or your services, how are they going to be packaged together.
From there you backtrack a little bit, say, “Okay, well how many customers or accounts is it going to take me at this number or this price point in order to get me there?” It can range anywhere from, if you have 100 customers each paying you $1 million, then that’s what will get you there versus if you have a million customers who are each paying you $100 a year, then that will also get you to $100 million. The whole point of this part one is to identify what your business model looks like and the price points that you were going to be expecting customers to come in at in order to be able to build your business out to get to that level.
Rob: And something to think about here is they keep talking about this $100 million mark because that’s what funded companies shoot for. That’s when you can get acquired for $1 billion, you can IPO or whatever. You don’t have to think like that. If you look around at successful competitors, even if let’s say they’re a bootstrapped fast company doing $2, $3, $4 million and they’re in an adjacent space but you see that they’re just killing it with a certain sales funnel, or a certain type of Facebook ad, or a certain ad network you haven’t heard of, or with affiliate webinar model.
There’s all types that you can see, and then you borrow, you adapt, and you use it in your space. But they’re not to be doing $100 million. They’re just throwing that out because I think that’s how people in the valley think. There can be successful approaches by people who get to $500K in ARR or $1 million in ARR. It may work better or worse in your space if you leverage it well and if it is something your competitors are not doing, which is a key thing. If they’re doing it, it’s not to say you shouldn’t do it but it just becomes harder because you guys are both similar products and marketing in a similar way. It just becomes a lot of noise but if you can figure out a way to again borrow something from an adjacent space and bring it into your market, that’s a good way to think about it.
Mike: And that’s what we’re doing with the way that they’ve laid out this customer acquisition strategy because you can take that number of $100 million and say, “Okay, let’s scale this down. Instead of shooting for $100 million, let’s shoot for $1 million.” How do you take this strategic approach and just chop off a couple of zeroes from that and say, “Okay, this is what we’re shooting for?”
I do find it interesting the way that they lay out the 100 customers paying you $1 million versus one million customers paying you $100 a year. The different levels they have are 100 customers, 1000, 10,000, 100,000, and then one million. They essentially map them to different types of animals. The $1 million a year customer is an elephant, and then the next one down, the $100,000 customer is a deer, then they have rabbits, mice, and then flies. That’s how they categorize these different types of customers. It’s really just a matter of scaling for them.
The second part of this is identifying the right hunting strategy that you’re going to be using to target these types of customers. They specifically call out Aaron Ross’ Spears, Nets, and Seeds Acquisition Framework for this. If you’re not familiar with that, we’ll have the links in the show notes for this. Essentially, the idea is that there’s different types of tactics that you can use to acquire those customers.
Spears is an acquisition strategy that you’re going to have to do a lot of leg work for this. You’re going to have to do outbound sales, you’re going to have to do business development, exhibits. I don’t want to call it manual labor, but there’s a lot of human elements or human labor that is involved in it that there’s just a lot of work. It’s hard to automate some of those things.
The second one is using nets and that’s something where you pull in a large number of prospects all the same time. These are things like blogging, or content networking, or webinars, or PR, things like that, and a lot of those people are going to end up being useless as prospects, but you’re going to get a lot of the ones that you’re also looking for.
Seeds is the strategy to grow your customer base essentially on its own because you’re gathering those up in such a way that you want to help them grow, and in essence they will then turn around and help you grow. It’s partly leaning on word-of-mouth, viral campaigns, and any other customer interaction where you get those people to help you grow. A very common example that people use is Dropbox where they would free storage space in exchange for you sharing it. That’s a viral campaign and it’s also customers helping you to acquire customers.
Rob: Right and they give an example of a few companies that do it and they say, “Salesforce did the spears model which is the direct human involvement, high-touch sales as we call it here. Xero, which is an accounting package just the nets model and that is blogging content, marketing, PR type stuff, and that’s what most of the B2B SaaS apps that we frequent. The non-enterprise ones that are not doing high-touch sales, that’s the common approach here. Then Dropbox and Facebook they’re doing the seeds approach.
I think this is a good through experiment. I think it’s probably pretty easy for you to answer. If your price point is going to be low, then yes, you need some virality or you need organic search or you need a traffic source that’s basically going to be free because you need customer acquisition to be very low.
I think a lot of the bootstrappers we know who do WordPress plugins, they get that free traffic in essence from wordpress.org for the plugin repo. Then they take that big wide funnel—it’s a freemium model—and they sell addons that are paid to that and you get get a nice little business based on that. That really is a net of sorts. It’s much less a viral approach so it wouldn’t be like seeds and it’s definitely not the one-on-one spears stuff.
But if you have a high purchase price, let’s say you have the potential to sell deals that are $10K a year, $20K a year and up, that’s when you really want to think about—you still want to do the nets stuff, which the where the blogging, content marketing, and PR, you still want to think of doing that and driving inbound traffic, but then using the spear approach, using the high-touch sales as much as you can because you’re just going to close a lot more sales once you do that.
I don’t remember what the exact numbers were, but I remember when we brought in on a drip, I have been doing some sales demos here and there and I really didn’t enjoy them. I wasn’t particularly good at them and always put them off because this wasn’t a think that I like to do but once we brought Anna in and started just really being customer success in sales, we started closing two times or three times the number of higher value deals.
At the time, high value was $150 a month and up or something. That’s like start moving your MRR in a hurry. If you can close 10, 20 of those a month and you’ve been growing at a few grand a month, you’re growing two, three grand a month and suddenly you can double growth by doing that.
Anyway, I see a lot of value in taking a couple of these approaches. I don’t think you need to be so focused or so differentiated between not doing parts of both. I think all three of these are good if you can make them work.
Mike: In general, I think that most of the SaaS companies that we tend to encounter on a regular basis in our circles tend to use the net strategy where you’re doing content marketing or you’re publishing articles and collecting an email list and that’s generally the way it’s done because I think with seeds, it feels to me like that’s the model that you almost need to have funding for because you need to be able to pay for that in some way, shape, or form. Like with Dropbox, they had funding so it was easy for them to pay for that.
With spears, it takes a lot of manual effort to drop a sales rep, to go to talk to some enterprise customer and six months to a year to land them as a customer, and you needed to be able to have the runway in order to do that. I feel like most bootstrap businesses tend to concentrate on the net strategy and that in some ways, dictates the types of customers that you’re going to attract as well. You can either pick which customer you’re going to go after and then hone the types of tools that you’re going to use, and the strategy that you’re going to use to get them, or if you it the other way around, then you’re going to be pointed specifically in one direction at the type of customer you’re going to end up with.
In part three of this article we’re going to basically skip over this because they drill into a couple of different things with those strategies. First one was spears. They talk about sales force, HubSpot. The second one with nets, they talk about Xero, and then with seeds they talk about Dropbox and Facebook. We’re going to go skip over those just because we’d rather talk about them a little bit. We’re going to talk more specifically about the types of approaches you can use in these areas, specifically like a bootstrap business because I think that’s going to be more relevant to people listening to us.
With spears, Rob, you did actually just had a great anecdote about how you had Anna doing some of those sales calls and those one-to-one customer success calls. Did you transition from having you do it to somebody else do it just because you didn’t like doing it or was it because you saw that there was potential there that you really wanted to capture and go after?
Rob: It was less about not liking it because frankly, if I didn’t like it and I didn’t think that there’d be very many, I would have just done them. But I felt like were leaving money on the table by not having someone who could get good at the demos, who could really work with customers, spend more time, and I did not have the time. That was much more of a time constraint.
The job of a founder over time is to fire yourself from every job, so when Derrick and I started, he was writing the code, he and I were doing product together, and I was doing everything else. There was a lot. It was marketing, it was sales, and it was demos. I was even doing email support early on before, before I brought someone else to do that.
So one by one I just started firing myself from those. Bringing Anna on I was going to hand her a lot of the marketing and the sales, and it turned out she was really good at customer success. She was good at the other things too, but customer success was where she really excelled. It turns out that there’s a nice overlap between sales and customer success if you’re doing it well and you’re trying to truly help someone understand not just what the product does but how it can help that person.
I think it’s a good example to think about in the early days you always have to be choosy about what you’re doing, but in the early days you have to be really picky about it. You have to just find that one channel, maybe two channels that are going to get you to the point where you have enough money to hire that next person. Once you have that next person, now you can either hand them one of the channels to manage, you can find them new channels, or you could hand them both the channels you already have going, and you go out and find the new ones. It depends on the type of person you hire and what you enjoy doing. Do you enjoy just walking and tackling on the stuff you already know or do you enjoy going out and finding those new strategies?
You’re not going to need 10 marketing strategies to get seven or eight figures in revenue. You can do it with really a very small amount. Often it’s between one and three that you really get working, it depends on app obviously, but if you really kept one to three cranking, you just wash, rinse, repeat, and you start doing it over and over. You look at how lead pages grew with their Clay’s affiliate webinar model. Look at how HitTail grew. It was a lot of Facebook ads and SEO were the two things that grew HitTail. We look at Moz, Rand Fishkin’s company, grew through a ton of content and content marketing. HubSpot was a combination of content plus having a sales force. It’s not like you need to master 10 different things in order to really grow a company.
Mike: I think the interesting thing here is that they talk about spears and relate them back to sales force and HubSpot. Those two are really focused on extremely large customers and they’re going after the elephants as they put it. People are going to pay them lots of money. But I think that in the very early days of the bootstrapped software company, you can use that strategy and almost you have to use that strategy because you have to try and figure out who your ideal customer is.
You don’t want to cast a wide net and end up with hundreds or thousands of people who are all the wrong fit for your company. You want to specifically pick and choose, like, “I want to go after companies that are making between $1 million and $5 million, these are the parameters, this is the person I want to talk to.” If that works and those people turn into customers, then you want to keep going after them. But if you’re casting a wide net and you’re trying to get lots of people into your sales funnel, then it’s a lot harder to do that because you’re getting a lot of data but you don’t have any way to quantify what is the right data from the right people. I think that using that, that spear strategy when you’re very, very early on to help you figure out, like are these the right people to talk to, that’s a very viable approach.
Once you gotten past the point of figuring out the attributes of your ideal customer, then you start using strategies and tactics that fall under the nets category. That’s because you know who it is you are targeting and you can run paid advertising, for example, and you can specifically target those people. You can write articles and blog posts and publish them, knowing that you’re going to attract the right types of people because in those articles, you can talk about the types of problems that those people are having. It allows you to grow the business and the number of people that you’re bringing in. Not only are we going to be a great fit but most of them will be because of what you learned using the spears approach early on.
Rob: Yeah and that’s the thing when you’re first starting out. This refers more to bootstappers because if you’re venture-funded, a lot of them setup sales forces. They do that, they do the spear stuff even to $100 million. But for bootstrappers, that is an interesting thing to think about, that progression of starting with spears, why you are doing customer development, moving to nets which is getting the phone going and getting a lot of customers in that funnel. Whether you’re closing them self-service, whether you’re doing low touch, medium touch sales, doesn’t really matter. I think the higher touch sales you can do—in almost all cases—leads to higher conversion rate, at least with people who want that kind of extra hand-holding.
With seeds, if you’re in super early stage, let’s say you have 50 customers, seeds don’t work because you don’t have the momentum yet. It’s when you get 1000, 2000, 3000 customers, that everybody starts talking about you, and then if there’s a referral program, or there’s a way to bring other people in, or you get that mini brand in that, either in the vertical or with those thousands of people, that’s when seeds stuff really start working. It is interesting to think about it as something they didn’t say in the article at all but it’s life-cycle. It’s step one, step two, step three, at least loosely.
Mike: The last one is seeds, which, it’s hard to get your customers or it’s hard to move the needle in your business if you’re relying on customers to help you let other people know they could become a customer of yours if you don’t already have customers. That’s really a classic chicken-and-egg problem. If you don’t have any customers, you’re not going to able to grow your business enough. Maybe if you got one customer and they refer one person, you can grow 100% but it’s really difficult to even get that level out of it.
So the seeds strategy is really something that you can’t really implement until after you have a customer base and you know that you’re solving their problem in such a way that makes them happy enough to be able to refer other people that they know into your application. That’s mainly because there’s a lack of trust there. You need to be able to get them to a point where you are solving the problem well enough that they trust you in order to say, “Hey, I’m willing to expend my social capital, invite some of my friends to using this product because it’s helpful or solves a valuable problem for me.”
I do think that there are cases where that is not necessarily as applicable, especially in a B2C environment. Social sharing, for example, that’s a very low ask for people versus referring somebody as an actual paying customer. So there’s a bit of a difference I think between a referral program versus, “Hey, invite somebody else to use this free app that you and 25 of your friends are already using.”
Rob: Yeah with B2B stuff, depending on how deep into B2B you are, is it truly B2C? Is it B to very small business? Is it B to prosumers, which is more like photographers? Or, are you getting into B to mid-sized business and B to enterprise? Each of those really has a different kind of seed model like a different virality. As we look, Facebook certainly is on the B2C, period. It’s not really a business platform, even though people are running businesses on it. Now I’m trying to promote them. But it spread because of the very much consumers linking up with one another. That’s going to be a different model than if for selling software that’s let’ say, $10,000, $20,000 a year. They’re not going to do things for the same reasons. They’re going to make recommendations because they go to trade shows and someone asks, “Hey, what software do you use for this?” or you can do affiliate programs. Can work, but really it depends on how much space is at that point. More as with consumers, I think the affiliate stuff and the giveaways makes a lot more sense.
We could probably do a whole episode. I don’t want to go down that rabbit hole too far but I think there’s a lot of different approaches you can use here if you’re trying to go with the seed route and go for virality.
I think that wraps us up for today. Again, we will link to the marketingstudent.com’s article that we talked through today. If you have a question for us, call our voicemail number at 888-801-9690 or email us at email@example.com. If you do it as an MP3 or another type of audio file, those always go straight to the top of the question queue.
Our theme music is an excerpt from We’re Outta Control by MoOt. It’s used under Creative Commons. Subscribe to us in iTunes by searching for startups. Visit startupsfortherestofus.com for a full transcript to each episode. Thanks for listening. We’ll see you next time.